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RELATIVELY UNCONTROLLABLE OUTLAYS FOR 1977
[In billions of dollars]
Open-ended programs and fixed costs:
Social security and railroad retirement..
(Military retired pay).
Subtotal, payments for individuals 123
Total, open-ended programs and fixed costs 1 2 3
Outlays from prior-year contracts and obligations:
Total, outlays from prior-year contracts and obligations--
Total, relatively uncontrollable outlays.....
Based on controllability classification used in the 1979 budget. Uncontrollable outlays now include the Public Health Service officers retirement program.
? Revised to treat earned income credit payments in excess of an individual's tax liability as tax refunds.
3 Based on controllability classification used in the 1979 budget. Uncontrollable outlays now include the child nutrition and special milk program.
Excludes prior-year contracts and obligations for activities shown above as “open-ended programs and fixed costs."
Most of the $1.8 billion overestimate in payments for individuals can be explained by differences between assumed and actual economic conditions and beneficiary levels, and by the effects of legislation enacted after the budget was transmitted.
Outlays for social security and railroad retirement were $0.4 billion above the original estimates. Lower cost-of-living adjustments reduced outlays for these programs by $0.2 billion. The January 1976 estimates assumed a 6.7% increase in July 1976 and a 5.9% increase in July 1977; the actual increases were 6.4% and 5.9% respectively.
This reduction was more than offset by an increase in outlays for railroad retirement program ($0.2 billion) and a large increase in average benefits per claim for the disability insurance program ($0.3 billion). Outlays for Federal employee retirement programs were $0.8 billion below the original budget estimates. Public Law 94–440—a rider to the Legislative Branch Appropriation Act of 1977—changed the method of calculating mandated cost-of-living increases for Federal retirees. Previously, cost-of-living increases for Federal retirement programs occurred whenever the Consumer Price Index (CPI) increased by 3% and remained at that level or higher for 3 months. Benefits would then be raised by the percentage increase in the CPI at the high month of the 3-month period plus 1 percentage point. The new law eliminated this so-called 1% “kicker” and established semiannual cost-of-living increases effective in March and September. Enactment of this new legislation reduced retirement costs by $0.2 billion; $0.1 billion each for military and for other Federal employee programs. Lower inflation rates lowered the original estimates by another $0.2 billion, again split evenly between military and other Federal retirement programs. In addition outlays were revised downward by $0.4 billion as a result of significant overestimates of the number of Civil Service retirees. The January 1976 budget overestimated the number of new retirees by 28,000 in 1976 and 35,000 in 1977. Outlays for unemployment insurance programs were $1.2 billion below the original estimates. The actual unemployment rate for fiscal year 1977 was 7.3% compared to an assumed rate of 7.1%. However, the insured unemployment rate, which is the basis for projecting unemployment benefits, was 0.5 percentage points below the January 1976 projection. This was the major reason for the $1.2 billion shortfall in unemployment outlays. Actual 1977 outlays for veterans programs were $0.4 billion lower than the original budget estimates. Legislated increases for compensation benefits (8.0% effective October 1, 1976) and pension benefits (7.0% effective January 1, 1977), together with a larger number of pension beneficiaries than expected, raised outlays for these programs by $0.8 billion from the original estimates. Outlays for readjustment benefits, however, were $1.3 billion below the January 1976 estimates due to a large overestimate of the number of participants in these programs. About 800,000 fewer veterans applied for benefits than anticipated. Outlays for medicare were $0.3 billion lower in 1977 than originally assumed, while medicaid outlays were $0.6 billion higher. The increased outlays for medicaid resulted from greater than anticipated increases in participants applying for benefits.
Uncontrollable outlays for housing subsidy programs were $0.1 billion below the original estimates, reflecting a slower rate of new construction of these units.
Public assistance programs, which include public assistance cash payments, food stamps, and child nutrition programs, were overestimated by more than $0.3 billion. However, there were large offsetting revisions in outlays within this broad category. Food stamp outlays were $0.7 billion above the original estimates due to a postponement of administrative changes. Those changes would have reduced the number of eligible individuals covered by the program. Supplementary security income outlays were overestimated by $0.6 billion due largely to a significant overestimate of the number of beneficiaries, particularly elderly individuals. Welfare cash payments were $0.1 billion higher than originally estimated, reflecting higher benefit levels enacted by various States.
Net interest outlays were $3.0 billion below the original 1977 estimates. Interest on the public debt was $3.1 billion lower due to slightly lower than anticipated debt levels and significantly lower interest rates during 1976 and 1977. The January 1976 budget assumed a 5.5% interest rate on 91-day Treasury bills through 1977. Actual interest rates averaged 5.4% in 1976 and 4.9% in 1977. Interest received by trust funds, which is offset against interest costs to reflect transactions with the public, was $0.2 billion less than estimated, reflecting lower interest rates.
Outlays for general revenue sharing were $0.2 billion above the estimates of January 1976. Public Law 94–488, the State and Local Fiscal Assistance Amendments of 1976, increased the amount each jurisdiction received by changing the formula under this program.
Farm price supports were $2.7 billion higher than estimated due to legislated price support increases and poorer market conditions. Outlays for wheat accounted for nearly $2.0 billion of this increase. An anticipted large demand for grain exports did not materialize, and the surpluses from record high production resulted in large outlays for commodity loans. Also, the administration increased substantially the commodity loan levels for wheat and feed grains. Higher price supports for dairy products and price weaknesses for other commodities contributed to higher outlays.
Other open-ended programs and fixed costs were overestimated by $0.2 billion. Changes in military sales credits reduced outlays by $1.0 billion; this was partially offset by payments to the Postal Service funds, which were $0.8 billion higher than originally estimated, reflecting passage of Public Law 94–421, the Postal Reorganization Act Amendments of 1976.
Outlays from prior-year contracts and obligations were $7.9 billion lower for 1977 than assumed in January 1976. National defense outlays in this category were $7.4 billion lower, reflecting a significantly slower rate of spending than anticipated, while civilian programs were $0.5 billion lower for 1977. Major overestimates for civilian agencies included $0.5 billion for the Department of Transportation, $0.4 billion each for Funds appropriated to the President, the Environmental Protection Agency and the National Aeronautics and Space Administration, and $0.2 billion for the Department of Commerce. Major underestimates for civilian agencies included $0.4 billion for the Department of Housing and Urban Development, $0.3 billion for the Department of Agriculture, and $0.5 billion for the Department of Health, Education, and Welfare.
Reconciliation of actual and estimated receipts.-As shown in the following table, receipts for 1977 were $6.2 billion greater than the original budget estimate. Legislated tax changes that were substantially different from those proposed in the 1977 budget are largely responsible for this net increase.
COMPARISON OF FISCAL YEAR 1977 RECEIPTS
January Change 1976 room estimate Actual 1976 estimate Individual income taxes------------------------------------- 1 153.0 156.7 3.7 Corporation income taxes------------------------------------ 49.5 54.9 5.4 Social insurance taxes and contributions----------------------- 113. I 108.7 —4.4 Excise taxes------------------------------------------------ 17.8 17.5 —.3 Estate and gift taxes---------------------------------------- 5.8 7.3 1.5 Customs duties--------------------------------------------- 4.3 5.2 ... 8 Miscellaneous receipts--------------------------------------- 7.2 6.5 —.7 Total.----------------------------------------------- 1350.7 356.9 6.2
* Revised to treat earned income credit payments in excess of the tax liability otherwise owed as tax refunds instead of outlays.
In the 1977 budget, permanent individual and corporation income tax reductions were proposed to become effective July 1, 1976, along with several tax incentives to encourage specific economic activities. The other major tax proposals affecting 1977 receipts included an increase in the combined employer-employee social security tax rate from 11.7% to 12.3% effective January 1, 1977, and an increase in the Federal unemployment insurance tax rate (from 0.5% to 0.65%) and wage base (from $4,200 to $6,000) effective January 1, 1977.
The Congress essentially rejected these proposals, enacting alternative legislation. On October 4, 1976, the Tax Reform Act of 1976 was enacted. This act extended some temporary tax provisions that had originally been scheduled to expire on June 30, 1976, and made others permanent.” It also enacted a number of major tax reforms and other changes. Amendments to the Unemployment Compensation Act in 1976 increased the Federal unemployment insurance tax rate from 0.5% to 0.7% effective January 1, 1977, and postponed the proposed increase in the wage base to January 1, 1978. The Tax Reduction and Simplification Act of 1977, enacted in May, also affected 1977 receipts. This act replaced the low income allowance ($2,100 for a joint return and $1,700 for a single taxpayer) and the percentage standard deduction (16% of adjusted gross income with a maximum deduction of $2,800 for a joint return and $2,400 for a single taxpayer) with a flat standard deduction of $2,200 for single taxpayers and $3,200 for married couples filing jointly. Withholding rates were reduced on June 1, 1977, to reflect these changes. The act included a jobs credit based upon certain new employees hired in calendar years 1977 and 1978 and postponed the effective date of certain provisions of the Tax Reform Act of 1976. Individual income taxes were $156.7 billion in 1977, $3.7 billion greater than the original budget estimate. As shown in the following table, nonenactment of the 1977 budget proposals resulted in an increase in receipts of $22.8 billion. This increase was partially offset by the Tax Reform Act of 1976 and the Tax Reduction and Simplification Act of 1977, which reduced 1977 receipts by $13.2 billion and $2.1 billion, respectively. Slightly lower than anticipated economic activity and an overestimate of tax payments caused actual receipts to be lower than estimated receipts by an additional $3.9 billion. Corporation income tax receipts were $54.9 billion in 1977, $5.4 billion greater than the original budget estimate of $49.5 billion. Differences in tax law from the legislation proposed in the 1977 budget resulted in a net increase in receipts of $3.2 billion. Differences in tax collections and economic conditions from those assumed in the budget account for the remaining $2.3 billion increase. Social insurance taxes and contributions in 1977 were $4.4 billion less than originally estimated, with lower employment taxes and contributions accounting for $3.8 billion of the shortfall. Nonenactment of the proposed increase in the social security tax rate to 12.3%, effective January 1, 1977, was largely responsible for this underrun in 17 Previously the Congress had enacted interim legislation that extended reductions in individual income tax withholding rates and the corporation income tax rate that were scheduled to expire
on June 30, 1976. These rates were extended because the Congress had not completed action on the substantive tax law changes that were later incorporated into the Tax Reform Act of 1976.